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How to negotiate a collaborative outsourcing deal

Stephanie Overby | April 28, 2014
You say you want more from your IT outsourcing service provider, yet you fall back on the same old negotiating tactics. To find out how to develop a more collaborative relationship with service providers, talked Kate Vitasek, who wrote the book on the subject.

IT outsourcing customers say they want more from their service providers. Yet they often use the same old negotiating tactics to set up their outsourcing deals.

If you want a more collaborative relationship with IT service providers, it has to start at the negotiating table, says Kate Vitasek, author of "Getting to We: Negotiating Agreements for Highly Collaborative Relationships," based on research conducted at the University of Tennessee Knoxville. talked to Vitasek about what's driving the need for more collaborative outsourcing relationships, how traditional negotiating tactics destroy value, and how to set up an IT outsourcing deal that benefits both customer and supplier. You introduce the concept of "vested" outsourcing, in which customer and supplier are equally committed to each other's success, several years ago. Have outsourcing relationships become any more collaborative since then?

Kate Vitasek: Collaboration is certainly an often-heard buzzword these days, and I believe collaborative outsourcing relationships are gaining traction. A recent Gartner analysis (which focused on outsourcing in the logistics sector) said that by 2017 about 20 percent of logistics outsourcing will use collaborative, value-based relationship principles, up from about 10 percent today. That is a strong and encouraging growth curve.

Is the same kind of growth also occurring in the IT realm? I don't have hard data or an analyst's prediction to point to. But I can say that we are seeing a great deal of interest in our work in the IT sector with people taking either our online or in-person courses in the University of Tennessee's Vested Certified Deal Architect program. What are the biggest hurdles to establishing more collaborative IT outsourcing deals?

Vitasek: Funny you ask because I do a great exercise on this exact topic in our courses and when I speak at supplier summits or customer forums. Overwhelmingly the number one answer to your question is "trust," or more appropriately a lack of trust.

It's sad. Why do companies outsource if they can't trust their supplier? If they need to change suppliers, they could do so. But what we find is that they don't trust any suppliers.

Lack of trust was something that plagued Dell in their outsourcing relationship with GENCO, which had managed Dell's North American reverse logistic operations for eight years. The two decided to have a strategic meeting in a neutral location to discuss their lack of trust and what was causing it.

Tom Perry, GENCO president of reverse logistics, said, 'There was a moment of truth in that June meeting. I did not want to proceed because I didn't have enough trust to move forward.' But his colleagues convinced Perry to stay the course. Perry is glad he did: 'I had an epiphany. If you can't get past absence of trust, you can't ever make it work. I can't say enough about how that's changed everything.'


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